What you hear and see:
You get ALL your money back! All of it! After an initial deposit, you pay nothing, and when you cancel, you get it all back. We’ve been around since 1794 – must be doing something right.
What you don’t:
- This is a homeowners insurance company selling policies in Maryland and Pennsylvania directly to the consumer – and they have been doing this for centuries
- The primary selling point – the differentiation from the rest of the marketplace – is HOW one pays, not FOR WHAT one pays.
- Paying once (a “deposit”) and getting that deposit back – very appealing on the surface
- The carrier does this using the economic vehicle of compounding. They keep your deposit – about 11.2 times what you’d pay for an annual policy according to their web site – and make money on your money. So, a $400,000 home that might cost $1500 traditionally requires a $16,800 deposit
- Anyone can do this themselves , and likely do A LOT BETTER. Take the difference of the deposit ($16,800) and a premium ($1500) and invest that $15,300 in the stock market. Assuming a 9% return – average over the past 100+ years – and that $15,300 becomes $36,200 after just 10 years. One can pay a lot of premium with $36,200, and then some.
- That $3620 split amount 10 years - $3620 – does not compare well with $1500
- Does the carrier require more “deposit” as home values go up? Oh yes
- Does the carrier handle other lines of insurance – like auto? Oh no.